2021 (2) TMI 446 - AT - Income Tax

TDS u/s 194C - payment was made to goldsmiths for making charges - HELD THAT - Payment was made to three heads of goldsmiths which was in turn distributed to other goldsmiths and each payment was less than ₹ 20,000/- and, the aggregate amount paid throughout the year was below ₹ 50,000/-,thus, the payment does not attract TDS u/s 194C. CIT(A) confirmed the disallowance for want of evidences such as work bills, confirmations from the individual goldsmiths etc. Goldsmiths are moving labour force, works with head goldsmiths and does the work wherever the work is available, thus it is ambitious to expect the work bills, confirmations from the goldsmiths for their work. They are unorganized sector, makes the work and receives the daily payment. Also common that the head goldsmith brings the group of labour along with him and collect the charges and distributes to the remaining labour force. Since the assessee has furnished the details of head goldsmiths and the payment was not suspected, there is no reason to apply the provisions of section 194C and the 40(a)(ia) of the Act. The payment made was less than ₹ 20,000/- and aggregate payment does not exceed the sum of ₹ 50,000/- as per the details furnished by the assessee. This fact was not disputed by the Ld.CIT(A). Therefore, we set aside the order of the Ld.CIT(A) and delete the addition made by the AO u/s 40(a)(ia). For remaining amount since the assessee failed to furnish the details either before the AO or before the Ld.CIT(A), we do not find any reason to interfere with the order of the Ld.CIT(A) and the same is upheld. Appeal of the assessee on this ground is partly allowed. Unaccounted purchases - Difference between the purchases reported in VAT returns and purchases recorded in the books of accounts - HELD THAT - The assessee produced the books of accounts, bills and vouchers and the AO did not find any inflation of purchases. There is no dispute that the purchases were duly accounted in the books of accounts. The assessee explained that the difference was due to exempted purchases which were not reflected in the VAT returns. Since there was no defect found in the books of accounts and the AO did not make out a case that the assessee has over stated the purchases, there is no reason to make the addition. Hence, we set aside the order of the Ld.CIT(A) and delete the addition made by the AO. The assessee s appeal on this ground is allowed.

Summary

Issues:
1. Disallowance of making charges under section 40(a)(ia) of the Income Tax Act, 1961.
2. Difference between purchases reported in VAT returns and purchases recorded in books of accounts.

Analysis:

Issue 1: Disallowance of Making Charges
The appeal was filed against the disallowance of making charges under section 40(a)(ia) of the Income Tax Act for the Assessment Year 2010-11. The Assessing Officer disallowed a sum of &8377; 18,84,836 as making charges, out of which the assessee agreed to the disallowance of &8377; 4,03,485. The Commissioner of Income Tax (Appeals) confirmed the disallowance of the remaining amount. The assessee contended that the payments made to goldsmiths were below the threshold limit specified under section 194C of the Act and hence not subject to TDS. However, the appellate authority upheld the disallowance due to the lack of documentary evidence supporting the payments. The ITAT observed that the payments were made to head goldsmiths who further distributed the amounts to other goldsmiths, each payment being below &8377; 20,000, and the aggregate payments being below &8377; 50,000, thus not attracting TDS provisions. The ITAT set aside the CIT(A)'s order and deleted the addition of &8377; 14,81,351, as the assessee had provided details of the head goldsmiths and the payments were deemed legitimate, not warranting the application of section 194C and section 40(a)(ia) of the Act.

Issue 2: Difference in Purchases
The second issue pertained to the addition of &8377; 1,72,705 made by the Assessing Officer due to the variance between purchases reported in VAT returns and those recorded in the books of accounts. The assessee explained that the difference was due to exempted purchases not reflected in the VAT returns. The Commissioner of Income Tax (Appeals) confirmed the addition, citing lack of evidence supporting the claim. However, the ITAT found no discrepancy in the books of accounts and accepted the explanation provided by the assessee regarding the variance arising from exempted purchases. As there was no evidence of overstatement of purchases, the ITAT set aside the CIT(A)'s order and deleted the addition of &8377; 1,72,705. The appeal of the assessee on this ground was allowed.

In conclusion, the ITAT partially allowed the appeal of the assessee, deleting the additions made by the Assessing Officer in both issues.